American Airlines cuts profit outlook amid higher fuel prices and a $230 million labor expense

By Tomi Kilgore

Air carrier's stock sinks to a 4-month low and weighs on airline sector

Shares of American Airlines Group Inc. dropped toward a four-month low Wednesday after the air carrier cut its third-quarter earnings outlook, citing higher fuel prices and costs associated with a new labor agreement.

The company said it now expects adjusted earnings per share of approximately 20 cents to 30 cents, down from previous guidance of about 85 cents to 95 cents. The FactSet EPS consensus is 69 cents.

The stock (AAL) fell 3.8% in morning trading, enough to make it the second-worst performer in the S&P 500 SPX and to put it on track for the lowest close since May 4. Meanwhile, the U.S. Global Jets exchange-traded fund JETS shed 2.2% toward the lowest close since May 24.

American said the ratification of a new collective-bargaining agreement with its pilots, who are represented by the Allied Pilots Association union, resulted in a retroactive-pay expense of about $230 million. That expense, which will be recorded in the third quarter, lowered the adjusted EPS outlook by 23 cents.

"The remainder of the adjustment to the company's updated outlook is driven by higher fuel prices in the quarter," the company said.

The guidance range for the average fuel price per gallon was raised to $2.90 to $3 from $2.55 to $2.65. That follows raised fuel-cost estimates from a number of air carriers last week.

American also revised higher its year-over-year growth outlook for available seat miles to 6% to 7%, up from 5% to 7%.

Also on Wednesday, Spirit Airlines Inc. (SAVE) lowered its third-quarter revenue outlook, citing heightened promotional activity for travel booked for the latter half of the quarter. The discount air carrier, which is in the process of being acquired by JetBlue Airways Corp. (JBLU), also raised its estimate for fuel costs per gallon in the quarter to $3.06 from $2.80.

And Frontier Group Holdings Inc. (ULCC), parent of fellow discount air carrier Frontier Airlines, raised its estimate for average fuel costs per gallon for the third quarter to $3.05 to $3.10, up from $2.80 to $2.90.

Coupled with "a recent significant unexpected change in the booking trajectory" and "elevated" operational cancellations resulting from the impacts of Tropical Storm Hilary and Hurricane Idalia, Frontier said it now expects third-quarter adjusted pretax margin to be negative 4% to 7%, compared with previous expectations of an increase of 4% to 7%.

Spirit Airlines' stock slid 1.8% in morning trading, while Frontier shares sank 9.3% toward a record low.

Elsewhere, shares of Delta Air Lines Inc. (DAL) declined 3%, shares of United Airlines Holdings Inc. (UAL) gave up 2.7%, shares of Southwest Airlines Co. (LUV) were down 2.1% and shares of JetBlue were off by 2%.

-Tomi Kilgore

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09-13-23 1035ET

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